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Apple's iTunes Radio Will Fail the Music Industry

Stocks in this article: AAPL P

NEW YORK ( TheStreet) -- Outside of my June 28 article, Apple (AAPL) Should Be Ashamed of Itself, nobody has a bad word (or, in most cases, even a word) to say about the iTunes Radio deal Tim Cook shoved down the music industrial complex's throat.

Actually, it's independent labels and artists, particularly the small ones, you should feel badly for. The majors have never had a problem being led into the depths of hell by a company that couldn't care less about its fate.

If you think Cook pulled off a brilliant coup, similar to Steve Jobs taking $14.99 album sales and turning them into 99-cent a la carte singles sales, you're wrong. He miscalculated.

Ultimately, this miscalculation won't hurt Apple's business -- music downloads and even ad revenue generated from iTunes Radio is and will remain a paltry fraction of its multibillion dollar hardware juggernaut. But, as usual, the music industry, in its lack of vision, fear of change and allergy to innovation, will get the short and wrinkled end of the stick.

After spending five minutes with iTunes Radio, something we knew all along becomes clear -- Apple wants streaming radio to gateway users into more music downloads. Based on the deal the indies signed with Apple (presumably the majors agreed to something similar), they're holding out hope that the company that revolutionized music listening and buying ends up right again.

Why else, in an age where some artists can't stop whining about how little they receive in royalties from Internet radio, would you agree to a deal where Apple pays exactly zero for so many plays. Just review my June report -- here's the link again.

If a song you stream on iTunes Radio is in your iTunes library, Apple might not have to pay a royalty. Stream a song from an album you own songs from -- but not the one you streamed -- and Apple might not have to pay a royalty. Apple was thoughtful enough to set a two songs per hour, per user cap on this highway robbery.

Promotional "heat seeker" tracks -- also exempt from royalties. And, if Apple decides to use some indie music to promote talk, weather, sports and news programming -- no royalties! During the iTunes Radio beta, which could last up to 120 days (I'm unclear as to when that period begins -- or began -- and ends), no royalties.

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